Softbank to acquire Vodafone’s Japan unit

Softbank has agreed to buy Vodafone’s struggling Japanese mobile phone unit for around ¥1.8 trillion ($15.3 billion), the companies announced Friday.

Softbank, one of Japan’s biggest telecoms and IT companies, will gain control of Vodafone KK, which is the third-largest mobile phone operator in the country. Vodafone, which had indicated recently that it would sell off the unit, said the Japanese division had been unlikely to bring it “superior long-term returns.”

Vodafone CEO Arun Sarin explained in an investors’ call Friday that Vodafone was late in implementing 3G technology in a leading-edge mobile market.

“It became clearer that maybe actually a buyout of our company here made sense for both parties more than if we had competed independently,” Sarin said.

The deal will be funded mostly by a leveraged buyout, which is when a buyer borrows a large amount of money and secures the loan with cash-flow from the acquired company. To supplement that, Softbank will invest approximately ¥200 billion and Yahoo Japan, in which Softbank holds a large stake, will contribute about ¥120 billion, Softbank said.

Another group approached Vodafone to acquire the unit, but Sarin declined to say how much that deal was worth. The Softbank offer was economically attractive and had a better certainty of completion, Sarin said.

The deal prompted questions whether Vodafone may try to shed other business units. Vodafone is looking to further refine its portfolio, but Sarin said “massive changes” aren’t likely.

The large cash return from the deal should reduce pressure on Vodafone’s management, which has experienced turmoil in recent weeks, wrote Robin Hearn, principal analyst at Ovum, in a commentary.

“Selling Japan gets rid of an irritation, but it does not make everything else OK,” Hearn wrote. “There’s still plenty of pressure in its core markets, and the company must now focus on generating growth in those markets that pay in cash, not just experience.

The acquisition brings Softbank about 15.1 million customers and a 17% share of Japan’s cellular market.

Softbank was an early investor in Yahoo and over the last few years has been selling off its stake to fund an aggressive expansion in telecoms, the broader IT industry and even banking. Its entry into the broadband Internet market forced down prices, increased competition and helped Japan achieve one of the best consumer broadband infrastructures in the world. The company has also acquired a license to run a new mobile service.

Vodafone, the largest European mobile operator, became active in the Japanese market around 2000, acquiring parts of Japan Telecom, a fixed-line carrier which also had a controlling stake in mobile operator J-Phone, which was known for popularizing multimedia messaging. By 2001, Vodafone had acquired a controlling interest in Japan Telecom which effectively gave it control of J-Phone.

It later sold off Japan Telecom’s fixed-lined business to Softbank and rebranded J-Phone with its own name.

Vodafone tried to offer the same handset models in Europe and Japan. But Japanese consumers weren’t keen on the European styles, and Vodafone bled customers to competitors. While Vodafone had been reversing the trend recently, the damage was enough to force headquarters in the U.K. to change course and sell the unit.

Vodafone expects the deal to close by the end of June 2006, it said.